Week ending 27th July 2007   

Apologies for being a day late in bringing this report to you, due to holiday commitments and as such will keep it brief.

US economic data released this week was generally weak, as June home sales fell by more than expected, as were June durable goods orders, which came in at 1.4% versus the 1.9% anticipated. The forecast University of Michigan “consumer confidence index” for July also disappointed but one bright spot was for Q207 GDP, which apparently was at 3.4% annualised versus the 3.2% expected. It was a week for the Bears’ as the Dow fell by 4.3% and the S&P 500 by 4.9%. The NASDAQ fell by 4.7%, whilst smaller companies, as represented by the Russell 2000 index, crashed by 7%..
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UK Q207 GDP also surprised on the upside, annualising at 3% against an expected 2.9%, albeit that house price rises eased during July from their earlier pace. Euro-Zone money supply for June grew at 10.9% from a year earlier, enough to keep pressure on the ECB to raise interest rates at their next meeting and higher than the 10.7% forecast. The region’s major stock indices performed even worse than Wall St over the week, as the UK FTSE 100 fell by 5.6%, with the French CAC 40 and the German Dax lower by 5.3% and 5.4% respectively.

Out East, Japan’s trade surplus for June was higher than consensus forecasts and has expanded by 53% from a year earlier whilst Tokyo CPI for July disappointed at -0.1% and June retail sales were at 0.9%, lower than the 2% anticipated. The Nikkei fell by 4.8%, whilst the Hang Seng ended lower by 3.1%.

On the currency front, the $US index found some traction, rising by 0.8% to 81, whilst US Treasury Bond 5 & 10 year yields fell by a large 5% and 3.4% respectively, on “flight to quality,” from stocks, ending the week at 4.6% and 4.79%.

Within the commodities complex, the $crude oil price climbed by a further 1.6% over the week to $77 a barrel, whilst the. $Gold price fell by 3.6%, ending the week at $660oz

Next week sees the latest US personal income and expenditure data, May home prices and June pending home sales, whilst the latest retail sales, CPI numbers and unemployment figures are due for the Euro-Zone. The UK announces consumer credit and mortgage lending for June and the Bank of England decide on any interest rate change. Finally, Japanese housing starts and unemployment figures for June are due out.

Last week we wrote,” The “sub-prime” woes of late have made lenders’ of all stripes do something that has been absent for many years, which is to “assess risk correctly.” The fuel for the continued mega mergers and/or acquisitions, DEBT, is drying up fast, whilst the psychology of borrowers and lenders alike is turning from a mood of ultra optimism to that of worry/fear. A very interesting period lies ahead.”   Week one was certainly very interesting and painful for many and for sure “risk” is being assessed once more.

“Bite off more than you can chew, then chew it”

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